Draganfly Inc. (NASDAQ:DPRO) Q3 2023 Earnings Call Transcript

Draganfly Inc. (NASDAQ:DPRO) Q3 2023 Earnings Call Transcript November 10, 2023

Rolly Bustos: Greetings and welcome to all shareholders and stakeholders to today’s Draganfly 2023 Q3 Earnings Call. My name is Rolly Bustos, and while I know most of you, I remind all others that I am the internal Investor Relations representative here at Dragonfly. We appreciate you joining us today. We will start as usual, with our with our CEO and President, Cameron Chell, discussing the third quarter operational highlights. From there, our CFO, Paul Sun, will discuss the financials and as always we’ll conclude with our Lead Director, Scott Larson, facilitating the Q&A portion. You are welcome to reach out to me individually after the call at investor.relations@dragonfly.com. Once again, I remind everyone that this presentation may include forward-looking information and statements.

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These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The full forward-looking disclaimer can be found on Page 2 of this presentation and I’d be happy to send that to anybody upon request. So, Cam, please go ahead.

Cameron Chell: Thanks, Rolly. Thanks to other members of the management and executive for being here. I know we also have multiple customers, partners attending and most prominently, thanks to our shareholders for being here today. I’m pleased to announce that we have just had a record quarter in 2023 on revenues of $2.138 million with product sales of $1.6 million and provision of services of just under $0.5 million. Also exciting to report is our gross margin of just under 2%. So, we had a gross profit this last quarter of $894,000. Our cash balance at the end of the quarter was $2.4 million, and we did a subsequent financing of $4.5 million, which closed on October 30th. I think most notably, in this as it relates to the revenue is that our two plants are now up and operational.

We finished the second plant and just turned it on in Q3. And I think we’ve started to see that now production flow of off of the benches and off of the line and we feel really good about how we’re now going to be able to satisfy the order book and start to see scale. I think it’s really important to note the world and geopolitical situation and really what’s happening in the drone space as it relates specifically to scale. So, we have, in the past, talked about the scaling of the commercial industry and how it’s really starting to come into its own with first the advent of many regulations, but most prominently beyond visual line of sight. But a little around two years ago now as the Ukraine conflict broke out, the reality is that small UAVs have proven incredibly effective in the theater of conflict and defense, so much so that the entire strategy and tactics around air dominance has shifted.

So, previously, air dominance was all about large manned systems, integrated communications, AWAC, integrated data analysis, and real-time impact analysis. And today, from 5,000 feet down, air dominance is all about small UAVs. So, almost regardless of the mass and the size of demand and large infrastructure air dominance that we’ve known or come to know in the defense field, if in a given area, you’re putting up multiples of small UAVs you will have a strategic advantage and tactical dominance on your area of operation. And that is a significant change. Now we’ve kind of been preaching that this would happen for years but it took the unfortunate conflict in Ukraine for this to become completely understood. So we’re now seeing budgets, massive budgets from the NATO countries, those longer ones that we have visibility with NATO and friendly countries — are now moving not just to autonomy, but certainly through autonomy, but predominantly within that autonomy, moving to air autonomy because again, that is where you can establish dominance for the most part.

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Q&A Session

So whether it’s Eastern Europe, whether it’s the unfortunate circumstances in the Middle East, whether it’s the incredible emerging market of border security in Africa, that now can afford to do border security because they don’t have to build air forces or satellite comms or a satellite observation to be able to do it. So we see huge opportunities now in that market as it relates to border security and small UAVs or the Southeast Asia theatre, including Taiwan and the potential challenges around territorial disputes and such with China it is absolutely being dominated by UAV discussions. To speak to this a little bit, approximately, they’re looking at about $20 billion of growth between now and 2030 in the small UAV market. This is being led by defense.

So rather than large infrastructure systems, defense is now looking to put in tens of thousands of swarms of drones in order to counterbalance the threats that may be out there and the efficiencies that come along with the small relatively inexpensive units. So Defense Innovation Unit announced the Replicated Program, this is the Pentagon Program dedicated to basically deploying tens of thousands of drones in the next couple of years of various sizes. So these will range from the Category 3 all the way down in the Category one, probably more focused around Category 2 and Category 3 which we play in. And we’re really excited about what these opportunities are. And we have seen a marked increase in pipeline, which we think will be adding to our order flow here shortly.

I think it’s a really important note within the space. So you can see by our product — the products that we have built historically is that we have in market now and the type of work that we’ve done with our contract engineering division and the personnel that we have up and to the right, that’s AI and military type of operations down into the left is consumer Toy type drones. And so you can see that our Dragonfly 3 XL drone, our Search & Rescue Drone, our Heavy Lift Drones they’re all skewing up into the right. And so of course, we don’t play in the pure military space. We play in the Commercial/Military space. Now whether by that design or by luck this is the space that the military is looking to pull from, right? It’s from the consumer space, the ability for — not the consumer space, the commercial space.

The ability for militaries is to tap into the commercial manufacturers who we’re now starting to gain some scale, including Dragonfly. In fact, I would say, led by Dragonfly that have the ability to field and deploy the type of equipment and do rapid innovation iteration and production in order to meet the demands of this market. This is what’s on the day in the Ukraine theatre. This seems to be what we’ll be pushing for — on the agenda in the other theatres as well proven by data and proven by actually what we’ve seen happen in the Ukraine, where again, Draganfly’s had a fortunate opportunity to be very active. Just taking a quick look at our products here. Here we’ve got our heavy lift drone. This is about a 9-foot across drone, carry 70 pounds.

It’s got a 50-minute operational flight time, it can be used for multiple types of operations, whether it’s sensor, ISR, delivery even in the commercial space, this is being used in wildfire type of situations to carry in equipment, carry in chainsaw as is the 3XL to the first to the right there. Now this last quarter, we did introduce 3XL hybrid. We have got incredible demand on this hybrid. So basically, what happened is we built the 3XL and our customers, particularly military pipeline came back and said, we need this drone, but we needed in a format that can fly for three-plus hours. And so we designed along with a partner, a 70cc engine that integrates onto the 3XL and to provide up to three-hour flight times with an additional four kilograms, that’s just under 9 pounds of payload.

So it’s got lots of sensor capability. It’s got lots of payload and ordinance capabilities still at that way. It can actually go longer than that if you take the payload gasoline as well. So you could fly this thing for eight-plus hours. So it’s potentially everything from a loitering ammunition to a very sophisticated ISR platform. The Precision drop-down, which system we introduced that in Q2, we now see orders happening in Q3 for pushing into Q4. This has got lots of applications, both commercial and military right below that is a quick delivery – quick release delivery box. Important to note on this block, it’s really the innovations around this blocks that allow for a number of other military applications to happen, but this is built on top of the medical delivery platform that we introduced into the market about 1.5 years ago.